Copyright © 2004 South-Western 5 Business Cycles Unit 5 : Unemployment

Copyright © 2004 South-Western IDENTIFYING UNEMPLOYMENT Cyclical Unemployment Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate. It is associated with with short-term ups and downs of the business cycle.

Copyright © 2004 South-Western IDENTIFYING UNEMPLOYMENT Describing Unemployment Three Basic Questions: How does government measure the economy’s rate of unemployment? What problems arise in interpreting the unemployment data? How long are the unemployed typically without work?

Copyright © 2004 South-Western How Is Unemployment Measured? Unemployment is measured by the Bureau of Labor Statistics (BLS). It surveys 60,000 randomly selected households every month..

Copyright © 2004 South-Western How Is Unemployment Measured? A person is considered employed if he or she has spent most of the previous week working at a paid job.

Copyright © 2004 South-Western How Is Unemployment Measured? A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job.

Copyright © 2004 South-Western How Is Unemployment Measured? Labor Force The labor force is the total number of workers, including both the employed and the unemployed

Figure 1 The Breakdown of the Population in 2001 Copyright©2003 Southwestern/Thomson Learning Adult Population (211.9 million) Labor Force (141.8 million) Employed (135.1 million) Not in labor force (70.1 million) Unemployed (6.7 million)

Copyright © 2004 South-Western How Is Unemployment Measured? The unemployment rate is calculated as the percentage of the labor force that is unemployed.

Table 1 The Labor-Market Experiences of Various Demographic Groups Copyright©2004 South-Western

Figure 2 Unemployment Rate Since 1960 Copyright©2003 Southwestern/Thomson Learning Percent of Labor Force Natural rate of unemployment Unemployment rate

Copyright © 2004 South-Western Why Are There Always Some People Unemployed? Frictional unemployment refers to the unemployment that results from the time that it takes to match workers with jobs. In other words, it takes time for workers to search for the jobs that are best suit their tastes and skills.

Copyright © 2004 South-Western Why Are There Always Some People Unemployed? Structural unemployment is the unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.

Copyright © 2004 South-Western Public Policy and Job Search Government programs can affect the time it takes unemployed workers to find new jobs. These programs include the following: Government-run employment agencies Public training programs Unemployment insurance

Copyright © 2004 South-Western Public Policy and Job Search Unemployment insurance is a government program that partially protects workers’ incomes when they become unemployed. Offers workers partial protection against job losses. Offers partial payment of former wages for a limited time to those who are laid off.

Copyright © 2004 South-Western Public Policy and Job Search Structural unemployment occurs when the quantity of labor supplied exceeds the quantity demanded. Structural unemployment is often thought to explain longer spells of unemployment.

Copyright © 2004 South-Western MINIMUM-WAGE LAWS When the minimum wage is set above the level that balances supply and demand, it creates unemployment.

Figure 4 Unemployment from a Wage Above the Equilibrium Level Copyright©2003 Southwestern/Thomson Learning Quantity of Labor 0 Surplus of labor = Unemployment Labor supply Labor demand Wage Minimum wage LDLD LSLS WEWE LELE

Copyright © 2004 South-Western Summary The unemployment rate is the percentage of those who would like to work but don’t have jobs. The Bureau of Labor Statistics calculates this statistic monthly. The unemployment rate is an imperfect measure of joblessness.